TaxTMI 
TaxTMI 
2021 (3) TMI 340
X X X X Extracts X X X X
X X X X Extracts X X X X
.... G.2 Submissions on behalf of the respondents H Issues arising from the dispute I Jurisdiction of the NCLT/NCLAT over contractual disputes I.1 Section 60(5)(c): "arising out of" and "in relation to" I.2 Jurisdiction of NCLT and GERC I.3 Residuary jurisdiction of the NCLT under Section 60(5)(c) J Validity of ipso facto clauses J.1 Position of international and multilateral organisations J.2 National jurisdictions J.3 Position in India K Appellant's right to terminate the PPA in the present case K.1 Analysis of the PPA K.2 Validity of the termination of PPA K.3 Dialogical Remedies L NCLAT's decision on the issue of liquidation M Appellant's liability to pay for the electricity interjected by the Corporate Debtor N Conclusion A The appeal 1 By its judgment dated 29 August 2019, the National Company Law Tribunal "NCLT" or "Adjudicating Authority" stayed the termination by the appellant of its Power Purchase Agreement "PPA" with Astonfield Solar (Gujarat) Private Limited "third respondent" or "Corporate Debtor". The order of the NCLT was passed in applications CA No. 701/2019 (fir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the then prevailing capital and financing costs, and debt equity ratio. It was envisaged that the PPA will be for 25 years, with higher tariffs in the first 12-15 years, and a scaled-down tariff for the remaining years. The tariff was to be applicable to solar projects commissioned within the control period of the First Tariff Order, i.e., from 29 January 2010 to 28 January 2012. 7 The appellant filed a petition before the State Commission on 28 May 2013, seeking initiation of proceedings for re-determination of the capital cost and tariff fixed under the First Tariff Order. This petition was filed on the basis that subsequent incentives given to power producers on 27 February 2010 had brought down their cost of capital and, as a consequence, the tariff fixed under the First Tariff Order should be revised. This petition was dismissed by the State Commission on 8 August 2013. An appeal against the order was dismissed by the Appellate Tribunal for Electricity "APTEL" on 22 August 2014. An appeal Civil Appeal No. 10301 of 2014 against APTEL's decision is pending before this Court, with notice having been issued on 28 November 2014. 8 The appellant and the Corporate Debtor ent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cember 2015. During this period, there was heavy rainfall and floods in the State of Gujarat, due to which the Plant was shut down for two months. The Plant was severely damaged due to the floods, and the generation of electricity was temporarily paused. By December 2015, normalcy was restored in the generation of electricity and the Plant was generating electricity at 70% of its total generating capacity. 15 During June and July 2017, Gujarat was again affected by floods due to heavy rainfall. The Plant was severely damaged due to the floods. Resultantly, it was only able to operate at 10-15% of its original capacity. 16 Due to the financial stress caused by the disruptions and damage, for which insurance claims remained pending, the Corporate Debtor was unable to fully service its debt to the Financing Parties (the second respondent and Power Finance Corporation), who proposed to declare the Corporate Debtor a non-performing asset ("NPA"). 17 On 15 February 2018, in accordance with Article 8.1 of the PPA, the Corporate Debtor intimated the appellant regarding the impact of the rainfall and floods on the Plant, and the measures adopted by it in this regard. The Corporate ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 10 May 2019. The replies are summarized below: (i) The reply to the First Notice states that the Corporate Debtor's PPA with the appellant is its only PPA, and hence they are heavily dependent on it for reaching a resolution under the IBC. In case the appellant terminates the PPA, prospective resolution applicants "PRAs" who had submitted their expression of interest for the Corporate Debtor might not submit a resolution plan, which would eventually lead to liquidation of the Corporate Debtor, defeating the main object of the IBC; and (ii) The reply to the Second Notice states that since the Corporate Debtor is undergoing CIRP under the IBC, the operations at the Plant were severely affected due to force majeure events in terms of the PPA. Thus, the conditions of the PPA could not be said to have been breached. 22 On 21 May 2019, a meeting was scheduled between the first respondent and the General Manager (IPP) of the appellant. During this meeting, the first respondent emphasized that if the PPA was to be terminated, revival of the Corporate Debtor will be at stake, since prospective resolution applicants may not submit resolution plans or may withdraw the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with the provisions of the IBC, and stand overridden. However, in paragraph 35 of its order, the NCLT held that the appellant could terminate the PPA, in the event that liquidation proceedings are initiated against the Corporate Debtor. Paragraph 35 reads thus: "35. It is however, made clear that if due to any reason, the Corporate Debtor goes into liquidation, the Respondent Company will be at liberty to terminate the Power Purchase Agreement." 26 The NCLAT by its judgment dated 15 October 2019 dismissed the appeal against the NCLT's order. The NCLAT noted that the appellant attempted to terminate the PPA on the sole ground that the CIRP has been initiated for the Corporate Debtor. It observed that during the CIRP, the first respondent has to maintain the Corporate Debtor as a 'going concern' and the termination of its sole PPA, under which it supplied electricity only to the appellant, would render the Corporate Debtor defunct. Hence, the NCLAT held that the appellant could not terminate the PPA solely on the ground of the initiation of CIRP of the Corporate Debtor, which was supplying power to the appellant during the period of the CIRP. Further, it restrained the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of this Court to allow them to withdraw their Resolution Plan dated 12 November 2019. This Court allowed the Successful Resolution Applicant to withdraw the interlocutory application filed in the present appeal on 20 July 2020. 31 The NCLT by an order dated 3 July 2020, dismissed the application filed by the Successful Resolution Applicant, thereby refusing to grant them permission to withdraw the Resolution Plan. Thereafter, the NCLAT by a judgment dated 30 September 2020, dismissed the appeal filed by the Successful Resolution Applicant against NCLT's order dated 3 July 2020. 32 The Successful Resolution Applicant has since filed an appeal Civil Appeal No. 3560 of 2020 before this Court challenging NCLAT's judgment dated 30 September 2020. By an order dated 16 November 2020, this Court granted a stay against the NCLAT's judgment dated 30 September 2020. G Submissions of counsel G.1 Submissions on behalf of the appellant 33 The case of the appellant has been presented initially in the articulate and carefully reasoned submissions made by Ms Ranjitha Ramachandran, learned counsel. Mr Shyam Diwan, learned senior counsel has then urged his submissions. The following s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e PPA was valid, or dwelt on the interpretation of the PPA, it has still erroneously set aside the termination of the PPA by the appellant without any basis under the IBC; (v) Even if it is assumed that NCLT has jurisdiction over disputes relating to the PPA, the adjudication of such disputes should be in accordance with the PPA. The sanctity of the contracts must be upheld unless there is a statutory provision interdicting such contracts. There can be no exercise of any inherent or residual power by the NCLT to set aside the termination of a contract absent a statutory interdict. The Resolution Applicant or NCLT have no powers to modify the PPA through a resolution plan. The formation, novation or alteration of the contract must be in accordance with Section 30(2)(e) of the IBC, which provides that the Resolution Plan cannot contravene any provision of law which is in force. The provisions of the Indian Contract Act, 1872 ("Contract Act"), require mutual agreement of the parties for such a modification; (vi) The submission of the respondents that 'property' under Section 3(27) of the IBC includes an actionable claim and hence the dispute falls under the jurisdict....
X X X X Extracts X X X X
X X X X Extracts X X X X
....19, covers licenses or approvals granted by a government authority. However, no reference has been made there to contracts such as PPAs; (iii) The respondents are attempting to resurrect the regime under Section 22(3) of the Sick Industrial Companies (Special Provisions) Act, 1985 "SICA", which empowered the Board to suspend the operation of all or any of the contracts to which the sick industrial company was a party. In Swiss Ribbons Private Limited vs Union of India (2019) 4 SCC 17; hereinafter referred to as "Swiss Ribbons", this Court held that the IBC was introduced because the regime under SICA and Board for Industrial and Financial Reconstruction "BIFR" had failed. Under the IBC, there is no such power to suspend contracts. Hence, when the legislature has wilfully omitted something or in a situation of a casus omissus, this Court cannot introduce what has been omitted by way of interpretation, analogy or implication; (iv) The termination of the PPA cannot be set aside based on the objective of the IBC to ensure that the Corporate Debtor remains a 'going concern', in the absence of a specific provision under the IBC. The objective of the IBC cannot be unders....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., it challenged the order before in an appeal, which was dismissed by the NCLAT on 4 December 2019. Therefore, the appellant has the right to terminate the PPA under Article 9.2.1(e), irrespective of whether any assignment has taken place under Article 12.9; (vii) The first respondent cannot rely on the resolution plan to prevent termination of the PPA since the resolution plan or process does not modify the terms of the contract of the Corporate Debtor with third parties. Each party took a calculated risk to enter into the contract with the knowledge that the appellant is entitled to terminate the PPA; (viii) The PPA is not an instrument under Section 238 of IBC, since the phrase used in the section - "instrument having effect by virtue of any such law" - does not cover commercial bilateral agreements between a corporate debtor and a third party laying down the terms of an executory contract entered between them. It only applies to a statutory contract or an instrument entered into by operation of law that is inconsistent with the IBC; (ix) No provision of the PPA is inconsistent with the IBC. Article 9.3.1 which specifies a period of 30 days for the Cor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontrary to its plain meaning; (b) Clauses such as Article 9.2.1(e) are standard clauses in agreements of this nature. Even after the notification of the IBC, similar provisions continue in PPA formats notified by the Government of India as part of the Standard Bid Documents for Tariff Based Competitive Bid Process under Section 63 of the Electricity Act for conventional power. Similar provisions are found in the PPAs being drafted as per Guidelines for Tariff Based Competitive Bidding Process for renewable energy sources; and (c) The bargain between the parties was fair and not one sided. The same default clause has been provided under the appellant's defaults in Article 9.2.2(c), and a corresponding right to terminate has been provided under Article 9.3.2. Similar clauses are provided under the standard PPAs issued by the Government of India for competitive bidding under Section 63 of the Electricity Act. Therefore, the clauses cannot be said to be unreasonable or unconscionable. 35 In summing up their submissions, the appellants have raised two more arguments: (i) The NCLAT's observations in relation to the termination of the PPA if the Corporate Deb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd Mr Nakul Dewan, learned Senior counsel appearing on behalf of the first respondent, have argued that NCLT had the jurisdiction to consider the validity of the termination of the PPA by the appellant on the sole ground of the initiation of the insolvency proceedings of the Corporate Debtor and that the jurisdiction was rightly exercised by the NCLT, in the present case. Mr C U Singh has made the following submissions on the jurisdiction of the NCLT: (i) The application for staying the termination of the PPA was filed by the first respondent before the NCLT under Section 60(5) of the IBC. Section 60(5)(c) confers upon the NCLT complete jurisdiction to decide any application by or against the Corporate Debtor on any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution of the Corporate Debtor, notwithstanding any other law for the time being in force. Hence, notwithstanding the provisions of the Electricity Act, the NCLT has jurisdiction to consider an application filed by the RP which may not specifically relate to a particular section of the IBC (such as Section 14), provided the application involves any questi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....olvency of the Corporate Debtor (for instance where termination is sought for non-supply of electricity); (vii) The fact that Sections 20(2)(e) and 25 of the IBC are couched in terms of a duty, does not necessarily mean that the NCLT does not have jurisdiction to decide matters that arise from the duty of the RP to preserve the assets or maintain the Corporate Debtor as a 'going concern'. On the contrary, NCLT is the only forum which has the jurisdiction to oversee the resolution process of the Corporate Debtor which necessarily includes the continuation of the Corporate Debtor as a going concern and its successful resolution; (viii) The facts of this case are different from those of Embassy Property (supra) and Municipal Corporation vs Abhilash Lal (2020) 13 SCC 234. Unlike Abhilash Lal (supra), the property in this case (long term contractual right under the PPA) is the property of the Corporate Debtor and not the property of a statutory authority. Further, there was no violation of law when NCLT injuncted the appellant from terminating the PPA on the ground of the initiation of the CIRP of the Corporate Debtor. In addition, the facts in Abhilash Lal (supra) dea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e first-year tariff considered on normative PLF while determining the tariff by GERC, within 30 days from the termination notice; (f) Article 12.9 of the PPA specifically provides that the financing parties may cause the power producer to assign its interest, rights and obligations to a third party; and (g) The PPA contemplates the financing of the project and that there could be financial defaults by the Corporate Debtor. Hence, the PPA specifically allowed financing parties to step in and change the identity of the power producer provided the successor was capable of and willing to assume the obligations of the power producer under the PPA. Article 9.2.1(e) must be read in light of this background. (ii) In relation to the interpretation of Article 9.2.1(e), it was submitted: (a) When the PPA was entered into in 2010, the IBC was not in existence. The contract was a standard form contract. While the clause refers to insolvency or bankruptcy proceedings, the intent of Article 9.2.1(e) could only have been to cover liquidation proceedings as contemplated under the CA 1956. The CA 1956 did not contemplate 'insolvency' or 'bankruptcy' procee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns of the IBC would override those of the PPA; (b) The argument that the PPA is not an "instrument" under the IBC is incorrect. Since the term "instrument" has not been defined in the IBC, it may bear a meaning drawn from the definition in other statutes. The PPA is approved by the GERC and has the force of law under the Electricity Act. The PPA sets out the rights and liabilities of the parties and is an instrument for the purposes of Section 238. Being an "instrument", which is inconsistent with the provisions of the IBC, the latter would have overriding effect over the former, in view of Section 238 of the IBC. Therefore, the right to terminate would only arise in case the third respondent fails to cure the default, i.e., resolve itself in accordance with the IBC; and (c) In view of Section 238, the IBC overrides the provisions of the Electricity Act. Section 63 of the IBC provides that "No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under IBC." NCLT's jurisdiction excludes that of the GERC. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tarted putting the Corporate Debtor back on its track, and along with the Resolution Applicant had formulated a plan under which the Corporate Debtor would be revived. The resolution plan was dependent on the continuation of the PPA; and (c) If the termination is permitted, the Corporate Debtor would not be able to revive in terms of the resolution plan which has been agreed upon by the lenders, even though it continues to be able to perform its obligations under the PPA. (ii) In relation to the interpretation of Article 9.2.1(e): (a) The term 'law', in Article 9.2.1(e) must be interpreted in a dynamic sense. The interpretation of Article 9.2.1(e) must be considered at the point of time it was sought to be invoked in order to ascertain whether there was an event of default. The exception under which "reorganization" is excluded as an event of default, would apply to the proceedings which were initiated under section 10 of the IBC for the sole purpose of the reorganization of the Corporate Debtor; and (b) The invocation of Article 9.2.1(e) on the ground that proceedings under Section 10 of the IBC had been commenced was both erroneous and prematur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s over the earlier special law. In this regard, the non-obstante clause under Section 174 of the Electricity Act would be overridden by Section 238 of IBC in case of a conflict of jurisdiction to resolve a dispute; (iii) The NCLT can exercise its jurisdiction under Section 60(5) of the IBC to ensure that the Corporate Debtor survives as a 'going concern'. It would not be possible to enter into another PPA with the same terms and conditions as the current PPA; (iv) The second respondent as a lender bank may not be able to initiate a dispute resolution process under Section 86(f) of the Electricity Act since it contemplates the resolution of disputes between a generator and a trading licensee; (v) Section 60(5)(c) of the IBC provides that the NCLT can entertain or dispose of any event or action arising out of, in relation to, effecting or hampering the insolvency resolution process. NCLT has the jurisdiction to intervene to the extent of removing any obstacle in the CIRP process for it to reach its logical end, which is approval of the resolution plan or liquidation. The contours of Section 14 of the IBC must be determined under such an understanding of Sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rued as event of default under the PPA; (x) The lenders extended the loan based on the: (a) right of assignment granted under Article 12.9 of the PPA; (b) purchase of electricity as a fixed tariff; and (c) term of the PPA for a period of 25 years. The financial projections on the loan and its repayment were made on the above terms. The default notice is in violation of the terms of the PPA and the understanding reached between the parties; (xi) Article 9.3.1 of the PPA is inconsistent with the IBC, since the PPA grants a time of 30 days to remedy the insolvency whereas the IBC provides a timeline of 180 days, which is extendable up to 330 days. Section 238 of IBC ensures that the IBC will prevail over the PPA. The phrase "instrument" in Section 238 can be interpreted in light of Section 2(14) of the Indian Stamp Act, 1899 and Section 2(b) of the Notaries Act, 1952 which provide that an "instrument", "includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded." Hence the PPA qualifies as an instrument; (xii) Section 14(1)(d) provides for protect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ersonal guarantors". The NCLT has been constituted under Section 408 of the CA 2013 "to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force" "Section 408. The Central Government shall, by notification, constitute, with effect from such date as may be specified therein, a Tribunal to be known as the National Company Law Tribunal consisting of a President and such number of Judicial and Technical members, as the Central Government may deem necessary, to be appointed by it by notification, to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force.". 44 NCLT owes its existence to statute. The powers and functions which it exercises are those which are conferred upon it by law, in this case, the IBC. 45 The NCLT in its decision dated 29 August 2019 did not specifically examine the issue of its jurisdiction under Section 60(5)(c) of the IBC. It prohibited the termination of the PPA on the ground that it is an "instrument" under Section 238; Articles 9.2.1(e) read with 9.3.1 of the PPA are inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... finding on whether it or the NCLT can exercise its jurisdiction under section 60(5)(c) over a dispute arising out of the termination of the PPA. In this regard, the task falls on this Court to enumerate the contours of the jurisdiction that can be exercised under Section 60(5)(c) of the IBC. I.1 Section 60(5)(c) : "arising out of" and "in relation to" 47 It has been submitted before us on behalf of the appellant that the NCLT does not have any inherent powers, and its exercise of jurisdiction is circumscribed by the provisions of the IBC. As such, it does not have the jurisdiction to entertain all disputes or all issues related to the Corporate Debtor. On the other hand, the respondents have made a limited submission that while the NCLT may not have jurisdiction to adjudicate upon contractual disputes that arise independent of the insolvency of the Corporate Debtor, it has the sole jurisdiction to decide a dispute that arises from or relates to the insolvency of the Corporate Debtor or where the property of the Corporate Debtor (in this case its rights under the PPA) is sought to be taken away on the ground of insolvency. For their argument, the respondents have relied on Se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was) observed: "50. The expression "in relation to" (so also "pertaining to"), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might have both direct significance as well as indirect significance depending on the context [internal citation omitted]. Assuming that the investments in shares and in lands do not form part of the undertaking but are different subject matters, even then these would be brought within the purview of the vesting by reason of the above expressions. In this connection reference may be made to 76 Corpus Juris Secundum at pages 620 and 621 where it is stated that the term "relate" is also defined as meaning to bring into association or connection with. It has been clearly mentioned that "relating to" has been held to be equivalent to or synonymous with as to "concerning with" and "pertaining to". The expression "pertaining to" is an expression of expansion and not of contraction." (emphasis supplied) 51 While the phrases "arising out of"" and "relating to" have been given an expansive interpretation in the above cases, words can have different meanings depending on the subject....
X X X X Extracts X X X X
X X X X Extracts X X X X
....80 Section 280 of the CA 2013 provides as follows: "280. Jurisdiction of Tribunal.- The Tribunal shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of,- (a) any suit or proceeding by or against the company; (b) any claim made by or against the company, including claims by or against any of its branches in India; (c) any application made under section 233; (d) any scheme submitted under section 262; (e) any question of priorities or any other question whatsoever, whether of law or facts, including those relating to assets, business, actions, rights, entitlements, privileges, benefits, duties, responsibilities, obligations or in any matter arising out of, or in relation to winding up of the company, whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made or such scheme has been submitted, or is submitted, before or after the order for the winding up of the company is made." of CA 2013. 53 A textual comparison of the provisions of Section 60(5) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....esidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 and is dealt with by the Courts. The existing framework for insolvency and bankruptcy is inadequate, ineffective and results in undue delays in resolution, therefore, the proposed legislation. 2. The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. 3. The Code seeks to provide for designating the NCLT and DRT as the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ankruptcy which would: (a) Maximize of the value of assets; (b) Promote entrepreneurship; (c) Facilitate the availability of credit; (d) Support the development of credit markets; and (e) Balance interests of all stake-holders. (viii) Bearing the above aspects in mind, the IBC, which is a consolidating and amending statute, came to be enacted; and (ix) The IBC, in a clear departure from the past, separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. 55 In the decision of this Court in Swiss Ribbons (supra), where the challenge was to the constitutional validity of some provisions of the IBC, the judgment by Justice RF Nariman contains a section titled "Prologue: the pre-existing state of the law". The problems which arise from multiplicities of statutes and fora in the erstwhile regime were noticed in the report of the Bankruptcy Law Reforms Committee (2015) ("BLRC"): "14. ...The current state of the bankruptcy process for firms is a highly fragmented framework. Powers of the creditor and the debtor under insolvency are provided for under different Acts... It i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nded to ensure the resuscitation of the corporate debtor. 57 The enactment of the IBC is in significant senses a break from the past. While interpreting the provisions of the IBC, care must be taken to ensure that the regime which Parliament found deficient and which was the basic reason for the enactment of the new legislation is not brought in through the backdoor by a process of disingenuous legal interpretation. However, this is not to say that the interpretation given to the statutory provisions that existed prior to the enactment IBC is to be rejected in toto. The interpretation given to such statutory provisions that are textually similar to Section 60(5)(c) may be relevant, provided that such interpretation is in tandem with the objective of enacting the IBC, that is, inter alia, avoidance of multiplicity of fora and a timely resolution of the insolvency process. 58 In Sudharshan Chits (I) Ltd. vs O Sukumaran Pillar (1984) 4 SCC 657, a three judge Bench of this Court held that the object of Section 446(2) of CA 1956 was to enlarge the jurisdiction of the Company Court to avoid a multiplicity of proceedings, delay and expensive litigation. The Court was speaking throug....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y could be adjudicated upon only by the court constituted under that Act. In such a situation, it would not be possible to hold that the High Court had, while dealing with an election petition, jurisdiction to decide a question as to whether a person is an undischarged insolvent or not. Admittedly, in this case, there is no such adjudication. Hence the High Court could not declare the appellant to be an 'undischarged insolvent'." 61 Section 45-B of the BRA uses language similar to Section 60(5) of the IBC. Section 45-B of the BRA provides: "Section 45B - Power of High Court to decide all claims in respect of banking companies The High Court shall, save as otherwise expressly provided in section 45C, have exclusive jurisdiction to entertain and decide any claim made by or against a banking company which is being wound up (including claims by or against any of its branches in India) or any application made under section 39 of the Companies Act, 1956 by or in respect of a banking company or any question of priorities or any other question whatsoever, whether of law or fad [sic fact] which may relate to or arise in the course of the winding up of a banking company, whet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sides repeal of Sick Industrial Companies (Special Provisions) Act, 1985 and amending section 10E of the Companies Act relating to the present Company Law Board. All the existing cases pending with the High Courts and the Company Law Board may be transferred to the Tribunal and the pending references before BIFR/ AAFIR shall abate." (emphasis supplied) 65 The above report was discussed in the decision of this Court in Union of India vs R. Gandhi, President, Madras Bar Association (2010) 11 SCC 1. A Constitution Bench noted that the recommendations of the Committee were accepted by the Government, which established the NCLT and NCLAT to transfer the functions being performed by High Courts, Company Law Board, BIFR and Appellate Authority for Industrial and Financial Reconstruction to a single forum to avoid long drawn litigation before multiple fora. Justice R.V. Raveendran observed: "3. (...) The Committee found that multiplicity of court proceedings is the main reason for the abnormal delay in dissolution of companies. It also found that different agencies dealt with different areas relating to companies, that Board for Industrial & Financial Reconstruction (B....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... law, once a liquidation or bankruptcy order has been made, leave of the NCLT or DRT would be necessary to proceed with any pending suit or proceeding or to file any fresh suit or proceeding by or against the debtor firm or individual. This will ensure the sanctity of the liquidation or bankruptcy process. The NCLT or DRT should also have jurisdiction to entertain and dispose of any pending or fresh suit or legal proceeding by or against the debtor company or individual; question of priorities or any other question, whether of law or facts, in relation to the liquidation or bankruptcy. By bringing all litigations that may have a monetary impact on the economic value of debtor firm or individual's assets within the jurisdiction of the NCLT, the liquidation or bankruptcy process will be made streamlined and efficient... 4.21 Tribunals Jurisdiction on firm insolvency and liquidation Under Companies Act, 2013, the National Company Law Tribunal (NCLT) has jurisdiction over the winding up and liquidation of companies. NCLAT has been vested with the appellate jurisdiction over NCLT. Similarly, the Limited Liability Partnership Act, 2008 also confers jurisdiction to NCLT for disso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Corporate Debtor. The nexus with the insolvency of the Corporate Debtor must exist. 68 It is appropriate to refer to the observations in the Report of the BLRC, wherein it noted the role of the NCLT, as the Adjudicating Authority for the CIRP, in the following terms: "An adjudicating authority ensures adherence to the process At all points, the adherence to the process and compliance with all applicable laws is controlled by the adjudicating authority. The adjudicating authority gives powers to the insolvency professional to take appropriate action against the directors and management of the entity, with recommendations from the creditors committee. All material actions and events during the process are recorded at the adjudicating authority. The adjudicating authority can assess and penalise frivolous applications. The adjudicator hears allegations of violations and fraud while the process is on. The adjudicating authority will adjudicate on fraud, particularly during the process resolving bankruptcy. Appeals/actions against the behaviour of the insolvency professional are directed to the Regulator/Adjudicator." As such, it is important to remember that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of the NCLT is circumscribed under section 60(5)(c) of the IBC. In Embassy Property (supra), it was argued that the term "property" under Section 3(27) of the IBC includes a mining lease granted by government and the lRP is duty bound under Section 20(1) of the IBC to preserve the value of the property of the Corporate Debtor. Hence, the submission was that the RP can invoke the jurisdiction of the NCLT to adjudicate upon a dispute relating to non-extension of the lease. However, Justice V. Ramasubramanian, speaking for this Court, observed that "the said argument cannot be sustained for the simple reason that the duties of a resolution professional are entirely different from the jurisdiction and powers of NCLT" Embassy Property (supra), para 39. 72 Therefore, we hold that the RP can approach the NCLT for adjudication of disputes that are related to the insolvency resolution process. However, for adjudication of disputes that arise dehors the insolvency of the Corporate Debtor, the RP must approach the relevant competent authority. For instance, if the dispute in the present matter related to the non-supply of electricity, the RP would not have been entitled to invoke the jur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....implementing a resolution plan. The Corporate Debtor in that case had committed defaults prior to the initiation of the CIRP, in relation to its obligation to construct a hospital on a land owned by the MCGM, subsequent to which a lease deed was to be executed. It had also apparently failed to pay annual lease rentals. In this context, Justice S. Ravindra Bhat, speaking for this Court held that: "47..... Section 238 cannot be read as overriding the MCGM's right - indeed its public duty to control and regulate how its properties are to be dealt with." Further, this Hon'ble Court held that "in the absence of approval in terms of Section 92 and 92A of the MMC Act, the adjudicating authority could not have overridden MCGM's objections and enabled the creation of a fresh interest in respect of its properties and lands....Nevertheless, the authorities under the Code could not have precluded the control that MCGM undoubtedly has, under law, to deal with properties and land in question, which undeniably are public properties. The resolution plan, therefore, would be a serious impediment to MCGM's independent plans to ensure that public health amenities are developed in the manner ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e enactments and of General Clause Act 1897, we failed to find a definition of the term 'instrument'. 22. For interpretation of the term 'instrument', we, therefore, thought it proper to check how the Legislature has defined the term 'instrument' in other enactments. 23 . Finding that the PPA has been executed on a Stamp Paper, we referred to the Section 2(14) of the Indian Stamp Act, 1899, which reads as follows: "Section 2(14): "Instrument" - "instrument" includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded". 24. That near similar definition of the term 'instrument' is provided under Section 2(b) of Notaries Act, 1952 : "Section 2(b): "instrument" includes every document by which any right or liability is, or purports to be, created, transferred, modified, limited, extended, suspended, extinguished or recorded;" 25. Further, the Bombay Stamp Act, 1958 defines the term 'instrument' in Section 2(1) as follows : "Section 2(1): instrument" includes every document by which any right or liabili....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Kumar Gupta", where this Court held that section 60(5)(c) of the IBC "is in the nature of residuary jurisdiction vested in the NCLT so that NCLT may decide all questions of law or fact arising out of or in relation to insolvency or liquidation under the Code" Ibid, para 69 81 At this stage we may visit some of the precedents emanating from this court where a statutory conferment of residuary powers has been analyzed. A two-judge Bench of this Court discussed the contours of the residuary power in Remdeo Chauhan vs Bani Kant Das (2010) 14 SCC 209, while interpreting sub-Section (j) of Section 12 of the National Human Rights Commission Act, 1993 which confers NHRC with "such other functions as it may consider necessary for the promotion of human rights". While construing the provision, this Court held that: "45....It is not necessary that each and every case relating to the violation of human rights will fit squarely within the four corners of Section 12 of the 1993 Act for invoking the jurisdiction of the NHRC. One must accept that human rights are not edicts inscribed on a rock. They are made and unmade on the crucible of experience and through reversible process of hum....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the person chargeable with the duty or charge, so short-levied, or to whom such refund has been erroneously made, shall pay the deficiency or pay the amount paid to him in excess, as the case may be, on written demand by the proper officer being made within three months from the date, on which the duty or charge was paid or adjusted in the owner's account-current, if any, or from the date of making the refund. 10-A. Residuary powers for recovery of sums due to Government: Where these Rules do not make any specific provision for the collection of any duty, or of any deficiency in duty if the duty has for any reason been short-levied, or of any other sum of any kind payable to the Central Government under the Act or these Rules, such duty, deficiency in duty or sum shall, on a written demand made by the proper officer, be paid to such person and at such time and place, as the proper officer may specify. 15. The points of difference between the above two Rules were that (i) whereas Rule 10 applied to cases of short levy through inadvertence, error, collusion or misconstruction on the part of an officer, or through misstatement as to the quantity, descri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of the mandatory provisions of the Code. In view of our interpretation already made, that after a criminal proceeding is committed to a Court of Sessions it is only the Court of Sessions which has the jurisdiction to tender pardon to an accused and the Chief Judicial Magistrate does not possess any such jurisdiction, it would be impossible to hold that such tender of pardon by the Chief Judicial Magistrate can be accepted and the evidence of the approver thereafter can be considered by attracting the provisions of Section 465 of the Code. The aforesaid provision cannot be applied to a patent defect of jurisdiction. Then again it is not a case of reversing the sentence or order passed by a Court of competent jurisdiction but is a case where only a particular item of evidence has been taken out of consideration as that evidence of the so-called approver has been held by us to be not a legal evidence since pardon had been tendered by a Court of incompetent jurisdiction. In our opinion, to such a situation the provisions of Section 465 cannot be attracted at all. It is true, that procedures are intended to subserve the ends of justice and undue emphasis on mere technicalities which a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase. 5. It would be seen that the section has been couched in the widest possible terms and confers complete and full powers on the Insolvency Court to decide all questions of title or priority, or of any nature whatsoever, which may arise in any case of insolvency. The only restriction which is contained in Section 4 is that these powers are subject to the other provisions of the Act. In other words, the position is that where any other section of the Act contains a provision which either runs counter to Section 4 or expressly excludes the application of Section 4, to that extent Section 4 would become inapplicable. Counsel for the respondent strongly relied on the provisions of Section 53 which runs thus: 53. Any transfer of property not being a transfer made before and in consideration of marriage or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration shall, if the transferor is adjudged insolvent on a petition presented within two years after the date of the transfer, be voidable as against the receiver and may be annulled by the Court." (emphasis supplied) It is relevant to note that unlike Section 4 of the P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a different interpretation is given, it will render the entire object of the section [4] nugatory, because the Court would be powerless to set at naught transfers which are patently void, merely because they had been made at a particular point of time." (emphasis supplied) 86 The decision in Johri Lal Soni (supra) gave an expansive interpretation to the powers of an insolvency court under Section 4 of the PIA, which is similar to Section 60(5)(c) of the IBC. This Court held that an insolvency court was empowered to consider the validity of void transfers under Section 4 of the PIA, which did not explicitly fall under Section 53 of the PIA. However, this Court's decision was premised on the finding that Section 53 of the PIA only dealt with voidable transfers. This Court noted that the jurisdiction of an insolvency court will be restricted in matters where a voidable transfer has taken place beyond the time-limit stipulated under Section 53 within which the transfer could be annulled by the court. Hence, in the name of exercising a residuary jurisdiction, a court cannot cloak itself with jurisdiction which is contrary to the provisions of a statute. However, at the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on on International Trade Law "UNCITRAL" released its Legislative Guide on Insolvency Law in 2004 "UNCITRAL Guide"; Available at accessed 18 February 2021. The UNITRAL Guide was created with the intent that it would be used "as a reference by national authorities and legislative bodies when preparing new laws and regulations or reviewing the adequacy of existing laws and regulations". This guide defines ipso facto clauses in the following terms: "114. Many contracts include a clause that defines events of default giving the counterparty an unconditional right, for example, of termination or acceleration of the contract (sometimes referred to as "ipso facto" clauses). These events of default commonly include the making of an application for commencement, or commencement, of insolvency proceedings; the appointment of an insolvency representative; the fact that the debtor satisfies the criteria for commencement of insolvency proceedings; and even indications that the debtor is in a weakened financial position..." The validity of such ipso facto clauses has been considered in a global perspective by international organizations and in the domestic jurisdictions of nation-sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....clauses, the law acknowledges the inherent tension between the primary arguments on both sides of the debate. One the one hand there is a need of ensuring that the debtor remains as a 'going concern' throughout the insolvency process. On the other hand, the law has to respect the freedom to enter upon contracts and the sanctity of enforcing contractual remedies. Controlling the ambit of ipso facto clauses does give rise to arguments of infringing upon the parties' freedom to enter into and enforce their contracts. The UNCITRAL Guide offers guidance to national authorities by concluding that it is desirable that their national insolvency laws override such ipso facto clauses, subject to limited exceptions, since the continued performance of the terminated contracts is often crucial to the success of the insolvency process. The UNCITRAL Guide states this in the following terms: "118. Although some insolvency laws do permit these types of clause to be overridden if insolvency proceedings are commenced, this approach has not yet become a general feature of insolvency laws. There is an inherent tension between promoting the debtor's survival, which may require the preservation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ebtor enters an insolvency procedure, some suppliers can have contractual rights, provided for in so called ipso facto clauses, entitling them to terminate the supply contract solely on account of the insolvency, even if the debtor has duly met its obligations. Ipso facto clauses could also be triggered when a debtor applies for preventive restructuring measures. Where such clauses are invoked when the debtor is merely negotiating a restructuring plan or requesting a stay of individual enforcement actions or invoked in connection with any event connected with the stay, early termination can have a negative impact on the debtor's business and the successful rescue of the business. Therefore, in such cases, it is necessary to provide that creditors are not allowed to invoke ipso facto clauses which make reference to negotiations on a restructuring plan or a stay or any similar event connected to the stay. (41) Early termination can endanger the ability of a business to continue operating during restructuring negotiations, especially when contracts for essential supplies such as gas, electricity, water, telecommunication and card payment services are concerned. Member Sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bligation under such contract or lease may not be terminated or modified, at any time after the commencement of the case solely because of a provision in such contract or lease that is conditioned on- (A) the insolvency or financial condition of the debtor at any time before the closing of the case; (B) the commencement of a case under this title; or (C) the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement" 96 A related provision, Section 541(c)(1)(B) of the US Bankruptcy Code provides that "an interest of the debtor in property becomes property of the estate" in spite of any "agreement, transfer instrument, or applicable non-bankruptcy law" which "gives an option to effect a forfeiture, modification, or termination of the debtor's interest in property". However, even so, the US Bankruptcy Code does allow ipso facto clauses in certain contracts (swap agreements, securities, forwarding, et al) to be enforceable. 97 Further, there have been instances where District Bankruptcy Courts in United States have invalidated ipso facto clauses in contracts other than executory contracts or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oming to the position of law in the UK, we must first acknowledge that the insolvency regime there is governed not just by legislation but also through common law doctrine. The important common law doctrine is the 'anti-deprivation rule', which seeks to prevent the improper removal of an asset from the debtor's estate, which would reduce the debtor's overall net asset value, which would in turn reduce the size of the pie. Hence, the rule seeks to prevent the debtor's assets from being reduced before they can become subject to the insolvency process. As such, it has been argued that ipso facto clauses could be in violation of the anti-deprivation rule since they allow a party to terminate a contract upon commencement on insolvency, which then takes away the debtor's valuable asset (i.e., the contract). 99 The scope of the anti-deprivation rule was clarified by the UK Supreme Court "UKSC" in the case of Belmont Park Investments Pty Ltd and others vs BNY Corporate Trustee Services Ltd and another (Revenue and Customs Comrs and another intervening) [2011] 3 W.L.R. 521; hereinafter referred to as "Belmont Park". The facts of this case have been succinctly summarized in an art....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "102 It would go well beyond the proper province of the judicial function to discard 200 years of authority, and to attempt to re-write the case law in the light of modern statutory developments. The anti-deprivation rule is too well-established to be discarded despite the detailed provisions set out in modern insolvency legislation, all of which must be taken to have been enacted against the background of the rule. 103 As has been seen, commercial sense and absence of intention to evade insolvency laws have been highly relevant factors in the application of the anti-deprivation rule. Despite statutory inroads, party autonomy is at the heart of English commercial law. Plainly there are limits to party autonomy in the field with which this appeal is concerned, not least because the interests of third party creditors will be involved. But, as Lord Neuberger stressed [2010] Ch 347, para 58, it is desirable that, so far as possible, the courts give effect to contractual terms which parties have agreed. And there is a particularly strong case for autonomy in cases of complex financial instruments such as those involved in this appeal. 104 No doubt that is why, exc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g ipso facto termination clauses is a product of legislation: section 365(e) of the Bankruptcy Code 1978... 174 The anti-deprivation principle recognised in English case law finds a parallel in section 541. But the English case law has to date focused on deprivation of property, and has not recognised any equivalent principle to that enacted in section 365(e). Further, section 365(e) is itself qualified by the "safe harbour" provisions of section 560, which specifically protect a non-defaulting swap participant's contractual rights to liquidate, terminate or accelerate a swap agreement because of a condition of the kind specified in section 365(e)(1), that is the insolvency or financial condition of the debtor and the commencement of a bankruptcy case... What it does suggest is that any general rule invalidating ipso facto termination clauses ought to be a matter for legislative attention, rather than novel common law development." (emphasis supplied) 103 The decision in Belmont Park (supra) has been followed by the Chancery Division in Fibria Celulose S/A v Pan Ocean Co Ltd vs Fibria Celulose S/A Chancery Division, dated 30 June 2014 [2014] Bus. L.R. 1041; her....
X X X X Extracts X X X X
X X X X Extracts X X X X
....try into insolvency proceedings (so-called ipso facto clauses). Absent statutory control, such clauses allow a counterparty to terminate even in circumstances where the debtor is ready, willing and able to perform their part of the bargain so that creditors can enjoy the benefit of performance by the counterparty. Such clauses can also be wielded as leverage to extract concessions from the debtor, as where the counterparty agrees to keep the contract on foot on the proviso that any outstanding debts owing by the company to it are discharged. English law has traditionally taken a generous approach to such clauses. The common law anti-deprivation rule does not invalidate termination clauses, there being "nothing objectionable or evasive about a provision entitling one party to terminate it [a bilateral contract] if the other becomes bankrupt". As David Richards J explained in the Football Creditors case: "In the absence of specific statutory provision, insolvency law does not compel a party to continue to deal with a company in administration or liquidation, nor does it prohibit a party from stipulating that all future dealings shall be on terms that not only future debts bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (6) Where a provision of a contract ceases to have effect under subsection (3) and the company becomes subject to a further relevant insolvency procedure, the supplier may terminate the contract in accordance with subsection (5)(a) to (c). (7) The supplier shall not make it a condition of any supply of goods and services after the time when the company becomes subject to the relevant insolvency procedure, or do anything which has the effect of making it a condition of such a supply, that any outstanding charges in respect of a supply made to the company before that time are paid. (8) ... (9) ... (10) ..." (emphasis supplied) 106 The Legislative Comment to the introduction of Section 233B reads as follows: "Ipso facto (termination) clauses A permanent change to the use of termination clauses in supply contracts is introduced by the Bill. In circumstances where a company has entered an insolvency or restructuring procedure, or obtains a moratorium, the company's suppliers will not be able to rely on contractual terms to stop supplying the company or vary the contract terms (e.g. by increasing the price of supplies). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s shall be unenforceable, except for contracts pursuant to Section 20(4)." English Translation available at accessed 24 February 2021. This law renders unenforceable all such provisions in contracts which provide a party with termination rights, due to the opening of insolvency proceedings against the debtor. However, this is only so when the terminating party's interests are not unreasonably affected, i.e., when a terminating party can show a good cause for termination, the termination shall not be rendered unenforceable. Further, contractual terminations due to other events of defaults mentioned in contracts remain valid Jan Felix Hoffmann, 'Executory Contracts, Ipso Facto Clauses and Licensing Agreements in Cross-Border Insolvencies' (2018) 27 Int'l Insolvency Rev 300, 304; 'International Comparative Legal Guides' (International Comparative Legal Guides International Business Reports) accessed 18 February 2021. J.2.4 France 109 This is also the position in France which, since its 2014 reform, in accordance with Articles L622-13 "...Notwithstanding any legal rule or contractual term to the contrary, the indivisibility, termination or rescission of the contract m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Federal Supreme Court of Germany issued a decision which overruled the lower courts' decisions and held that ipso facto clauses in contracts regarding the continuous delivery of goods or energy should be invalid if such termination is either triggered by a request for the opening of insolvency proceedings or the opening of insolvency proceedings over the assets of the other contractual party. The Federal Supreme Court also held that for such invalidation, it was irrelevant whether the trigger was institution of insolvency proceedings or filing of an insolvency petition. Briefly, the facts of the case were that a utility provider had entered into a long-term contract for providing electricity. The energy contract had an ipso facto clause which allowed for automatic termination if bankruptcy proceedings were instituted over the utility provider's customer or if the customer filed a petition for bankruptcy. The ipso facto clause was then given effect to by the terminating party. 112 The Federal Supreme Court based its decision on the purpose of the insolvency administrator's right to opt for the performance/non-performance of contracts, which protects the assets of the insolve....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... party or subjection to collective execution proceedings" Christoph G Paulus and Stathis Potamitis and Alexandros Rokas and Ignacio Tirado, 'Insolvency Law as a Main Pillar of Market Economy - A Critical Assessment of the Greek Insolvency Law' (2015) 24 Int'l Insolvency Rev 1, 18. Hence, ipso facto clauses are legislatively provided validity in Greece. J.2.7 Republic of Korea 115 The Republic of Korea follows the civil law tradition. Under Article 119(1) of the Debtor Rehabilitation and Bankruptcy Act of Korea "Article 119 (Options when Both Parties Fail to Fulfill Bilateral Contract) - (1) When the debtor and the other party to a bilateral contract have yet to complete performance of the contract at the time rehabilitation procedures commence, any custodian may cancel or terminate such bilateral contract and request the debtor to meet his/her obligations and require the other party to fulfill his/her obligations: Provided, That the custodian shall not cancel or terminate the bilateral contract after the assembly of related persons held to deliberate on a rehabilitation proposal or a decision is made to pass a written resolution on any case pursuant to the provisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the debtor company argued that the bank's right to terminate should be considered null and void by reason of Article 119 or, alternatively, the bank should refrain from terminating the contract at least during the period of the rehabilitation. The court considered the earlier decision in Allied Domecq (supra) and held that to achieve a proper balance between the purpose of rehabilitation and the principle of freedom of contract and the counterparty's need to be able to trust the debtor company, it was necessary to look at all the circumstances, such as the nature of the contract, the necessity to protect the debtor and the counterparty and allied relevant factors. The Court then conducted a detailed examination of what it regarded as the relevant factors, and held that Article 119 did not render the insolvency termination clause null and void. However, the Chancery Division in Pan Ocean Co Ltd (supra) did note that this decision may have been appeal in Republic of Korea. J.2.8 Canada 118 Legislatively, in Canada, Sections 65.1 "Certain rights limited 65.1 (1) If a notice of intention or a proposal has been filed in respect of an insolvent person, no perso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons also clarify that any contractual clause that, in substance, is contrary to the provisions as a whole is of no force or effect. However, their prohibition on ipso facto clauses does not apply to agreements such as commodities and forward contracts. Further, the terminating party, including utilities, can apply for a court order that these provisions do not apply, or only apply to an extent determined by the court, if they can demonstrate that the operation of these provisions will cause it significant hardship See Adrienne Ho, The Treatment of Ipso Facto Clauses in Canada, (2015) 61:1 McGill LJ 139. 119 On the other hand, judicially, in a split decision on 2 October 2020, the Supreme Court of Canada "SCC" upheld the Alberta Court of Appeal's majority decision in Chandos Construction Ltd. vs Deloitte Restructuring Inc. 2020 SCC 25 in its capacity as Trustee in Bankruptcy of Capital Steel Inc., a bankrupt (Chandos). Briefly, the facts of the case were that: (i) Chandos had subcontracted a project's steel work to Capital Steel. The subcontract included a term under which Capital Steel agreed to forfeit ten percent of the contract price if it became insolvent "as a fee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 118. 121 Some commentators note that the practical effect of this decision is that if a contracting party enters insolvency proceedings, certain contractual clauses that are triggered by insolvency and remove value from the debtor's estate are void and will not be given effect by Canadian courts. Further, they believe that the SCC rejected the UK Supreme Court's more lenient view of the anti-deprivation rule and aligned more closely to the policy underlying the anti-ipso facto clause provisions in the US Bankruptcy Code 'Chandos Upheld by Supreme Court of Canada: The Anti-Deprivation Rule in Canada' (Norton Rose Fulbright, January 2021) accessed 18 February 2021. J.2.9 Australia 122 Recently in Australia, the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act, 2017 "Amending Act" amended the Corporations Act, 2001, which governs the insolvency regime. Under this new regime, during the period of a specified restructuring or insolvency procedure, a right in a contract, agreement or arrangement will not be enforceable, and 'self-executing provisions' will not apply, by reason only of "[t]he company entering the specified procedure; the company's financial positio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (2) ... (3) Any provision in an agreement that has the effect of providing for, or permitting, anything that, in substance, is contrary to this section is of no force or effect. (4) On an application by a party to an agreement, the Court may declare that this section does not apply, or applies only to the extent declared by the Court, if the applicant satisfies the Court that the operation of this section would likely cause the applicant significant financial hardship. (5) Subsection (1) does not apply in respect of any legal right under - (a) any eligible financial contract as may be prescribed; (b) any contract that is a licence, permit or approval issued by the Government or a statutory body; (c) any contract that is likely to affect the national interest, or economic interest, of Singapore, as may be prescribed; (d) any commercial charter of a ship; (e) any agreement within the meaning of the Convention as defined in section 2(1) of the International Interests in Aircraft Equipment Act (Cap. 144B); or (f) any agreement that is the subject of a treaty to which Singapore is party, as may be prescrib....
X X X X Extracts X X X X
X X X X Extracts X X X X
....doption of such restrictions on ipso facto clauses. It noted the benefits in favour of restricting such clauses, which included: (a) keeping key contracts alive; and (b) protecting the interests of different contract holders and incentivizing the management to bring the defaulting company back on track. Further, it also noted the disadvantages of such restrictions, which included: (A) existing counterparties would be locked-in to unfavourable contracts, and compelled to perform their contractual obligations even where there may be no hope of being paid; and (B) a legislative provision would be too static for the dynamic character of modern-day commercial transactions in this domain. It therefore advised against legislative intervention to restrict such clauses. However, having taken note of these criticisms, Singapore nevertheless followed the examples of Australia and the UK in legislating such restrictions on ipso facto clauses 'Singapore's Restrictions on Ipso Facto Clauses: What Comes next? | Lexology' accessed 18 February 2021. J.2.11 Analysis 128 On the basis of our discussion of the above-mentioned jurisdictions, the following ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....slative mandate. J.3 Position in India 129 Before we consider the extent to which the lessons of other jurisdictions should be applied to India, it is important to advert to the discussion on the invalidation of ipso facto clauses in India. 130 In 2005, the Report of the Expert Committee on Company Law headed by J.J. Irani Available at accessed 24 February 2021 noted the requirement of reforms in the Indian insolvency regime, specifically citing the lessons from the recently published UNCITRAL Guide. In relation to the moratorium period, it made the following observations: "Moratorium and suspension of proceedings 13.1 A limited standstill period is essential to provide an opportunity to genuine business to explore re-structuring. ... 13.4 The law should provide for treatment of unperformed contracts. Where the contracts provide for automatic termination on filing of insolvency, its enforcement should be stayed on commencement of insolvency. 13.5 There should be enabling provisions to interfere with the contractual obligations which are not fulfilled completely. Such interference or overriding powers would assist in achieving th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... new provision to the IBC. 133 More recently, however, the IBC was amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2020 which, inter alia, introduced an Explanation to Section 14(1). The Explanation to Section 14(1) reads thus: "14. Moratorium.- ... Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period." 134 The legislative intent behind this amendment was discussed in the Report of the Insolvency Law Committee dated 20 February 2020. The Report noted the importance of keepi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g out of, or incidental to, property." This definition is substantially the same as the definition of "property" under Section 436 of the Insolvency Act, 1986 (UK), which has been considered the widest possible definition of property. In India too, it is accepted that certain licenses and concessions can convey permission to use property, or may embody a lease, permit, etc. granting rights in the property. Thus, their termination in certain circumstances, could have been considered contrary to an order of moratorium barring actions under Section 14(1)(d) or preventing alienation of property by any person. 8.6. Similarly, in many circumstances, termination or suspension of grants, particularly registrations, would be through proceedings that follow due process of law. Such proceedings may be a form of enforcement that would deprive the corporate debtor of its assets. In this regard, The Committee noted that the Section 14(1)(a) prevents "the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority." (Emphasi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4 SCC 225, Chief Justice S.M. Sikri noted that the 'separation of powers' doctrine is part of the basic structure of the Constitution: "292. The learned Attorney-General said that every provision of the Constitution is essential; otherwise it would not have been put in the Constitution. This is true. But this does not place every provision of the Constitution in the same position. The true position is that every provision of the Constitution can be amended provided in the result the basic foundation and structure of the constitution remains the same. The basic structure may be said to consist of the following features: (1) Supremacy of the Constitution; (2) Republican and Democratic form of Government; (3) Secular character of the Constitution; (4) Separation of powers between the legislature, the executive and the judiciary; (5) Federal character of the Constitution." (emphasis supplied) 138 In performing our duties as members of the judicial branch in this case, we must tread a fine line between providing a just decision while not entering into the domain of the legislature. 139 We have already noted above in ou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reatest challenges of adjudication when a balance has to made between what is right and what is right. 142 There are limitations of the judicial process in providing absolute answers to these questions. Judgments are rendered in cases involving specific fact situations. While they immediately bind the parties before the court, the impact of the pronouncement of principle will have a bearing on others whose contracts may contain similar provisions. In Northern Securities Company vs United States 1904 SCC OnLine US SC 63 : 24 S.Ct. 436, Justice Oliver Wendell Holmes Jr. acknowledged a similar judicial conundrum in the following terms in his dissenting opinion: "356. Great cases, like hard cases, make bad law. For great cases are called great, not by reason of their real importance in shaping the law of the future, but because of some accident of immediate overwhelming interest which appeals to the feelings and distorts the judgment..." 143 Consequently, we hold that question of the validity/invalidity of ipso facto clauses is one which the court ought not to resolve exhaustively in the present case. Rather, what we can do is appeal in earnest to the legislature to prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of a proceeding in any bankruptcy or insolvency laws, constitutes an Event of Default. The exception to this clause is triggered where dissolution of the Corporate Debtor is for the purpose of a merger, consolidation or reorganization and where the resulting entity has the financial standing to perform its obligations under PPA and creditworthiness. Article 9.2.1(e) of the PPA is quoted below: "9.2. 1 Power Producer's Default: The occurrence of any of the following events at any time during the Tariff [sic term] of this Agreement shall constitute an Event of Default by Power Producer: xxx e. If the Power Producer becomes voluntarily or involuntarily the subject of proceeding under any bankruptcy or insolvency laws or goes into liquidation of [sic or] dissolution or has a receiver appointed over it or liquidator is appointed, pursuant to law, except where such dissolution of the Power producer is for the purpose of a merger, consolidated [sic consolidation] or reorganization and where the resulting entity has the financial standing to perform its obligations under this Agreement and creditworthiness similar to the Power Producer and expressly assumes all ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nfield Solar (Gujrat) Pvt. Ltd.' (Corporate Debtor). [T]he electricity line have been given only to the 'Gujarat Urja Vikas Nigam Ltd.' and in terms of an agreement, they are supposed to supply electricity to 'Gujarat Urja Vikas Nigam Ltd.'" 152 As the above excerpts indicate, but for the subsistence of the PPA, the Corporate Debtor would no longer remain as a 'going concern'. Differently stated, by virtue of the PPA with the appellant being the sheet-anchor of the Corporate Debtor's business and consequently of the CIRP, its continuation assumes enormous significance for the successful completion of the CIRP. The termination of the PPA will have the consequence of cutting the legs out from under the CIRP. K.2 Validity of the termination of PPA 153 As discussed in Section "J.3" of this judgement, the broader question of the validity of ipso facto clauses has been the subject matter of sustained legislative intervention in many jurisdictions. This is an intricate policy determination, for it raises a series of questions about striking the appropriate balance between contractual freedom on the one hand and corporate rescue on the other. We are cognizant t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pplicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board: Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate." Parliament would have been conscious of the provision which was adopted in the SICA. Yet, no concrete position has been adopted in relation to the termination of ipso facto clauses by the legislature under the IBC. In the absence of an express prohibition by the legislature, it can be argued that there is no general embargo on the operation of such clauses if they are part of a valid contract under the Contract Act. 155 At the same time, we cannot lose sight of the fact that this Court is apprised with a novel situation where the 'going concern' status of a corporate debtor will be negated by a termination....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er or lessor where such property is occupied by or in the possession of the corporate debtor. Explanation.--For the purposes of this Sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period. (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (2-A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....suspension of such grants is prevented by Section 14, it recommended adding the Explanation "to avoid any scope for ambiguity and in exercise of abundant caution" Para 8.7, and to ensure that the legislative intent should be made explicit by introduction of the explanation by way of an amendment to Section 14(1). The Insolvency Law Committee (in its discussion in the February 2020 Report) took the position that Section 14 even in its unamended form, contained an interdict on the invalidation of government grants, though the language of Section 14 did not make this position explicit. 159 In contrast, this Court's judgment in Embassy Property (supra), concluded that the non-renewal of a mining lease was not within the ambit of Section 14. The Explanation to Section 14(1) was added by Parliament to make the position clear, on whether the moratorium under Section 14 included government licenses, grants, permits, quotas and concessions. 160 Section 14(2) provides that supply of essential goods or services, as may be specified, cannot be terminated, suspended or interrupted during the moratorium. Section 14(2A) was added with effect from 28 December 2019. It provides that, where th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... purposes of sub-section (1), the interim resolution professional shall have the authority- ....... to take all such actions as are necessary to keep the corporate debtor as a going concern." It is also relevant to note that Section 25(1) provides: "Section 25 - Duties of resolution professional (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor." Resolution plan is defined under Section 5(26) of the IBC as follows: "(26) "resolution plan" means a plan proposed by 3[resolution applicant] for insolvency resolution of the corporate debtor as a going concern in accordance with Part II; Explanation.--For the removal of doubts, it is hereby clarified that a resolution plan may include provisions for the restructuring of the corporate debtor, including by way of merger, amalgamation and demerger;" 163 Although various provisions of the IBC indicate that the objective of the statute is to ensure that the corporate debtor remains a 'going concern', there must be a specific textual hook for the NCL....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Edward Cole's words, to suppress the mischief and advance the remedy." (emphasis supplied) 165 Given that the terms used in Section 60(5)(c) are of wide import, as recognized in a consistent line of authority, we hold that the NCLT was empowered to restrain the appellant from terminating the PPA. However, our decision is premised upon a recognition of the centrality of the PPA in the present case to the success of the CIRP, in the factual matrix of this case, since it is the sole contract for the sale of electricity which was entered into by the Corporate Debtor. In doing so, we reiterate that the NCLT would have been empowered to set aside the termination of the PPA in this case because the termination took place solely on the ground of insolvency. The jurisdiction of the NCLT under Section 60(5)(c) of the IBC cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor. Even more crucially, it cannot even be invoked in the event of a legitimate termination of a contract based on an ipso facto clause like Article 9.2.1(e) herein, if such termination will not have the effect of making certain ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ether on account of conflict of interest of auditors with consultants, the auditors' profession may need an exclusive oversight body may be examined. The Committee may examine the Study Group and the Expert Group Reports referred to above, apart from any other material. It may also consider steps for effective enforcement of the provisions of the FDI policy and the FEMA Regulations referred to above. It may identify the remedial measures which may then be considered by appropriate authorities. The Committee may call for suggestions from all concerned. Such Committee may be constituted within two months. Report of the Committee may be submitted within three months thereafter. The UOI may take further action after due consideration of such report." 169 Conscious as we are of the fact that this case is about statutory and not constitutional interpretation, we think it would be apposite to quote the following observations by Anne Meuwese and Marnix Snel Anne Meuwese and Marnix Snel, 'Constitutional Dialogue': An Overview, Utrecht Law Review, vol. 9, issue 2, p. 128 [March, 2013]: "The core of constitutional dialogue between the judiciary and the legislature is that they....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s into liquidation. Since no pleadings or prayers were made in relation to paragraph 35 of NCLT's order, NCLAT could not have considered this issue as a subject matter of the appeal. We hold that the NCLAT exceeded its jurisdiction by considering the issue of liquidation. In the absence of any liquidation proceedings initiated against the Corporate Debtor, we are not required to consider the issue of whether the appellant would be entitled to terminate the contract in such a context. Such a discussion would be academic in nature, and beyond the scope of this appeal. M Appellant's liability to pay for the electricity injected by the Corporate Debtor 172 The appellant had served a notice of termination to the Corporate Debtor with effect from 7 June 2019, though the termination could not be carried out due to the operation of interim protection which had been granted to the respondents by the NCLT. It was contended on behalf of the appellant that it cannot be made to suffer on the ground of erroneous injunctions granted by the NCLT and NCLAT, due to which it had to pay a higher tariff because it could not terminate the PPA with the Corporate Debtor and procure electricity at a ....